Nigeria is now Africa’s largest economy and with that crown has come increased attention on the potential and peril offered by the OPEC member’s economic story.
In a report released earlier this week, Renaissance Capital lauded Nigeria, noting it is one of top frontier markets in the eyes of global investors while highlighting the country’s low debt/GDP ratio and accelerating growth.
Nigeria, Africa’s largest oil producer, has been on the receiving end of some praise in recent weeks. Earlier this week, BlackRock Managing Director & Head of Americas Index Strategy Sara Shores in an interview with ETF Trends, that although Nigeria equities have lagged, the country has strong growth expectations. [Frontier Changes Could Make for a Better ETF]
Nigeria’s economic ascent is relevant to investors in several ETFs, including the wildly popular iShares MSCI Frontier 100 ETF (NYSEArca: FM). With changes looming for the MSCI Frontier Markets 100 Index, Nigeria will eventually become FM’s second-largest country weight behind Kuwait. The $830.4 million FM currently devotes 11% of its weight to Nigeria, making it the ETF’s fourth-largest country weight.
ETFs such as FM are solid alternatives for the investor that wants some Nigerian equity exposure without the “all in” commitment of the Global X Nigeria Index ETF (NYSEArca: NGE). [April’s Best ETFs]
Although NGE is down 5.6% year-to-date, the fund has been solid since the start of April, gaining nearly 6%. Plus, Nigerian stocks, at least as measured by NGE, are inexpensive. The ETF’s P/E ratio of 8.98 is below the 9.92 it had for 2013, according to Global X data.
The Market Vectors Africa Index ETF (NYSEArca: AFK) is up nearly 9% this year with almost half that gain being accrued after Nigeria’s GDP rebase made it Africa’s largest economy. Nigeria is currently AFK’s third-largest country weight at almost 17%, but AFK is a GDP-weighted ETF, so it is possible Nigeria could eventually become the fund’s largest country exposure. [What Nigeria’s GDP Change Means for This ETF]
The EGShares Beyond BRICs ETF (NYSEArca: BBRC) provides combination emerging and frontier markets exposure. Just a couple of months after it debuted last year, BBRC transitioned to the FTSE Beyond BRICs Index in October, allowing the ETF to carry up to 25% frontier markets exposure.
The ETF also excludes Taiwan and the BRIC nations. BBRC features an almost 8% weight to Nigeria, making it the ETF’s sixth-largest country allocation.
In terms of valuation, “Kazakhstan follows Nigeria. Within the Gulf Cooperation Council (GCC), valuations favour Qatar over the UAE after the latter’s recent run, and our screen favours off-index Saudi Arabia over Kuwait. Oman also screens well, as do Pakistan and Bangladesh in Frontier Asia, and Estonia in Frontier Europe. “Off-index Georgia and Rwanda screen well in terms of macro, while political developments will drive Iran, Iraq and Egypt; all three are on our watch list,” said Renaissance Capital.
Pakistan, Oman, Kazakhstan and Bangladesh currently combine for 11.6% of FM’s weight, but Pakistan’s weight in the MSCI Frontier 100 Index is expected to rise to 8.9% following the aforementioned index changes. [Pakistan to be a Bigger Part of This ETF]
iShares MSCI Frontier 100 ETF
